A Bad Romance

Why Google and China proved fundamentally incompatible

By Chris Eldred, CMC ’11

google-chinaThe Western press has written much about Google and China’s recent falling out. Many have praised Google for taking a valiant stand for free expression in the face of China’s authoritarian government, and reports from Beijing have highlighted the wreaths and flowers that some Chinese have placed at Google’s China headquarters in protest.

Nonetheless, while the noble idealism attributed to Google may be authentic, it fails to paint a complete picture. Google and China have their own reasons for conflict, and the recent spat represents the fallout of a complicated relationship. Though surprising in this globalized world, the Chinese government and Google have found doing business with each other mutually disadvantageous.

Claremont McKenna government professor Minxin Pei explains the essential incompatibility between the two entities. Even if Google were to remain in China, “the Chinese government would have constantly harassed Google and tried to limit its growth,” he said. “Beijing is very paranoid about having a Western, especially an American, firm that would dominate its Internet search market.”

Pei’s analysis echoes the results of a survey conducted by the American Chamber of Commerce in China: a large proportion of American businesses operating in the Middle Kingdom claim they have received discriminatory or inconsistent treatment from authorities. According to Pei, these sentiments make sense. “Those in high-tech or media-related companies will likely experience greater difficulties in conducting business in China,” he said. “The Chinese government views these sectors as sensitive and important, and would like to impose as much control as possible.”

Still, it is understandable why Google has invested so heavily in China in the past decade. According to its own estimates, China has 400 million Internet users, and, in recent years, Google has seen exponential growth in ad revenue from the Middle Kingdom – albeit from a small base. With such a huge pool of consumers, combined with 10% annual GDP growth and rising standards of living, China undoubtedly remains a huge business opportunity for all U.S.-based Internet giants.

Google used such facts to justify censoring searches on its Chinese site to Americans and others who cried foul. Human rights are important, but one cannot expect a corporation to forgo doing business in a country with so much economic potential just because of difficulties getting along with that country’s government.

But this January’s China-based cyber attack on Google, resulting in the theft of intellectual property, altered the company’s perspective. Google makes money by encouraging people to invest more time and information on the Internet; this way, it can learn more about us and more frequently show us ads that we are increasingly likely to click on. For the system to work, however, Google must convince people that the Internet is a safe place to store personal information. The cyber attack, though not directly attributed to the government but reportedly aimed at the personal information of Chinese dissidents, counteracted Google’s essential promise of a safe and secure Internet.

In addition, the circumstances of China’s own Internet industry have changed since the 1990s and early 2000s. China now has its own hugely successful Internet services to promote and protect. Youtube and Facebook are both blocked outright, allowing the respective equivalents, Youku and Renren, to flourish. This move is consistent with the preferential treatment China’s government has given to domestic firms over the years – insisting that foreign firms seeking to enter China engage in joint ventures with Chinese firms. It also helps explain the government’s cold indifference to Google’s withdrawal; to succeed in the Chinese mainland, businessmen interested in expanding must relentlessly court Chinese government officials to build the guanxi, or relationships, that form a critical part of China’s economy.

Of greatest concern for the rest of us are the potential downsides of this fallout. Because of this and other incidents like GoDaddy.com’s withdrawal and the Rio Tinto arrests, the U.S. business community feels frozen out. At the same time, perhaps China has come to realize that they do not need to kowtow to the needs of American businesses as much as they used to. The world awaits the outcome of these new tensions.

Christopher Eldred is a Staff Writer for the Claremont Port Side. He was born and raised in the District of Columbia, but has been based out of Shanghai, China for the last six years. A government major, he is looking forward to working in politics later on, though he can't rule out an expatriate life.

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